All major companies are under scrutiny in the early phases of 2023. With soaring layoffs affecting all industries, earnings reports are often a wake-up call. Amazon will post its quarterly results later, and its cloud computing has to deliver big.
It almost feels like the stakes have never been higher for Amazon (AMZN). More specifically, the company owned by Jeff Bezos is known for providing some intriguing quarterly earning reports. It is not the most profitable company in the world, yet it remains unclear how the post-COVID era affected its sales. After all, online shopping has taken a hit, and Amazon is unlikely to escape that trend.
In addition to expected lower online shopping revenue, Amazon’s other core businesses may be under threat. Digital advertising is a very rough industry, and continued success is never guaranteed. In addition, the growing dismay towards online ads and data tracking has become more outspoken. That, too, will affect the AMZN stock price in the coming months and years.
The third pillar of Amazon’s empire is cloud computing. Given the sheer layoffs across the tech sector, it wouldn’t be surprising to see firms cut down on cloud computing costs. That could be problematic for Amazon, especially with its other two pillars bleeding value. It is likely that AWS will have to save the day for the retail giant and its stockholders.
The year 2022 has been brutal for most stocks. Some assets, like Netflix, bounced back near the latter half of the year. However, AMZN lost roughly half of its value and showed little intention of recovering. A bleak earnings report may be “priced in”, although overall investor sentiment seems somewhat bearish. In addition, Amazon’s earnings forecast is lower than the expected $145.9 billion. That creates a potent cocktail for AMZN market carnage.
It is worth noting cloud computing has lost some of its market momentum. For instance, Microsoft’s Azure grew by 38$ in Q4 2022, but business slowed down toward New Year’s. In addition, the tech giant confirmed that trend would likely continue until at least March 2023. A similar trend would validate AMZN investor woes, even if YoY revenue went up.
Furthermore, Amazon’s investment in Rivian Automotive (RIVN) isn’t going too well. The truck manufacturer saw stock prices slide by almost 45% in Q4 2022. That loss negatively impacted Amazon’s performance, as the company lost $2.3 billion on paper.
A final consideration is Amazon’s decision to fire up to 18,000 people. The announcement was made about a month ago. CEO Andy Jassy explained it is a necessary move to pursue “long-term opportunities with stronger cost structure”. Regardless of the reasoning, like many other companies, Amazon had to eliminate double- and triple-booked roles.
However, stockholders will expect to see those job-cutting measures impact the company’s profitability and free cash flow. That seems impossible, given Amazon’s negative free cash flow in most of its recent reports.
